Technical Analysis Features: Oil In Scope

Hello Forex Traders,

Our primary focus is almost always the Forex market. However, looking from time to time at other financial products can never hurt. Especially when one a trader is searching for a broader market sentiment or when a trader is looking at commodity dependant currency pairs.

That is why for the first time ever, let’s take a look at OIL. Let me know down below if you find this of particular interest or not, thanks!

Here is yesterday’s review of the majors, just in case you missed it :)

BOOM AND BUST

It is May 2003 – 10.5 years ago. Oil is trading at around $25. It might seem like a random chosen date and price, but of course it isn’t. This was the last time oil was valued in the mid $20 price range and it never looked back. Historically, $40 was the high point back at that time. But that record got smashed by the bull market.

19- 11- 2013 rise and fall

Let us take a quick review:

1)      This record got decisively broken in summer 2004 as price pushed towards the $50 mark.

2)      October the same year price spiked to a new high at $55 before using the previous resistance ($40) a support to move up higher and almost double to $80 in summer 2006.

3)      The rest is history as price tripled from $50 to $147 in a short time span of 1.5 years (from January 2007 to summer 2008).

4)      Oil then fell back to $33 in the next half a year (summer 2008 to January 2009).

5)      Then rebounded back up to $115 by May 2011.

6)      And has been consolidating ever since May 2011 between $75 and $115.

With that quick history of oil price in the last 10 years, we immediately understand that oil prices are currently consolidating.

CONSOLIDATION

Whether this consolidation is a pause for more upside, for more downside, or for more sideway movements is something that now needs to be investigated and analyzed. Our initial analysis incorporates the usage of trend lines and Fibonacci retracements.

The top at $115 and the bottom of $75 are still intact, which mean that this entire zone could be a correction for more downside (red coloring) or it could be a triangle break and hook back to upside (green coloring). Until one of the 2 levels (75 or 115) breaks there is no confirmation possible. A break of $115 confirms the bullishness. A break of $75 confirms the bearishness. But until that moment occurs, let’s see if some earlier predictions within the consolidation zone are possible.

19- 11- 2013 oil week

IMMEDIATE FUTURE

This year’s high at $112 did not manage to break the top at $115, and stalled at the 88.6% Fibonacci retracement level, which could be a first indication of more downside retracement.

The last 3 months oil has fallen $20 from $112 to $92 in a good momentum thrust to the downside. This down trend on the 4 hour / day chart is approaching weekly support levels at $91 and $85, plus there are signs of divergence on the lower time frames. A bounce back up seems likely sooner or later.

Depending on how price action move up, we can then make a careful conclusion whether this downside was a correction or only part 1 of the impulse. If price moves up slowly, then we can expect a continuation of this downside movement.

A break of bottom trend line would confirm the potential space down towards the 61.8% Fibonacci retracement and -0.272 at $65, at which we could expect support and a good rally.

To summarize:

a)      The current downside seems ready for a bounce up sooner or later as price approaches weekly support.

b)      Depending on upside momentum price could either:

  1. break the triangle to upside (targets at $122, $134, $147);
  2. or fail to post higher high and break triangle to downside and make 1 more momentum correction down to $65.

c)       Bullish bounce should be expected at $65 or bullish break out scenario above $115.

19- 11- 2013 oil fibs

Let me know down below how you view Oil and whether this has helped with your analysis?

Thanks for sharing and Good Trading!

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  • Chris Svorcik

    Thanks for the feedback Edith! :) Sorry to hear that. I dont trade it myself but do keep an eye on it from time to time :)

  • Edith Helwegen

    I’m definitely interested in Oil however I can’t trade it at the platforms I use.